Revathy CP Equipment Ltd. vs Deputy Commissioner of Income Tax and Others

R. Jayasimha Babu, J.—The assessee is aggrieved by the notices dated June 19, 1992, issued u/s 148 of the Income Tax Act, 1961, calling

upon the assessee to submit a return of its income for the assessment year 1983-84, as the Assessing Officer had reason to believe that the income

in respect of which the assessee was chargeable to tax for the years 1983-84 to 1988-89 excluding 1984-85 has escaped assessment within the

meaning of Section 147 of the Income Tax Act, 1961. According to the assessee, it had fully disclosed all the material facts necessary at the time

the original assessments were made and, therefore, the notices issued beyond the period of four years from the end of the relevant assessment

years were wholly illegal.

Though the notices do not set out the reasons, in the counter-affidavit of the Deputy Commissioner of Income Tax, Coimbatore, at paragraph 5,

the reasons for the issuance of those notices have been set out as under :

. . . . It has been found during the course of the assessment proceedings for the assessment year 1989-90, that the material evidence relevant for

the allowability of deduction u/s 80I of the Act during the assessment year 1983-84 was neither produced by the petitioner nor examined by the

Assessing Officer. Thus, the materials relevant for the claim of deduction u/s 80I of the Act was never considered from the beginning, but only the

quantum of relief was questioned. It is only in the assessment year 1989-90, that the Deputy Commissioner of Income Tax has gone into the

assessee''s eligibility to the relief u/s 80I on a consideration of the relevant materials furnished at the instance of the Deputy Commissioner of

Income Tax. Thus, it was not a question of change of opinion on the same set of facts, since the facts were never considered in the first instance . .

.

In the order of assessment for the year 1989-90, the Assessing Officer has with regard to the assessee''s claim for deduction u/s 80I of the Act

noted that in response to his question to the assessee as to when the industrial undertaking in question was established, the assessee had claimed

that no industrial undertaking was commissioned in the calendar year 1982 ; that it has claimed deduction u/s 80I of the Act from 1983-84 ; that

the licensed capacity of the assessee remained at 100 from the assessment year 1980-81 to 1989-90, while the installed capacity increased from

10 to 20 in 1983-84 ; that the production increased from 4 in the year 1980-81 to 52 in the year 1989-90-(21 months period); that the assessee

was incorporated on May 30, 1979 ; that the industrial licence pursuant to which the industrial undertaking was established was issued on January

22, 1977 ; that the assessee was engaged in the manufacture of blast hold and water well drilling rigs ; that the assessee-company in the

assessment year 1983-84 constructed a new production bay with a dimension larger than the existing one and capable of taking up manufacture of

10"" sized drills which were till that point of time being imported that the new bay was commissioned in 1984, when commercial production began

in the newly constructed bay and that new machineries have been installed at a total cost of Rs. 18.76 lakhs.

In the assessment orders for the years for which notices have been issued u/s 148 of the Act, there is no indication that any material was

produced before the Assessing Officer for the relevant years and that the Assessing Officer was fully aware of all the materials at the time the

assessments were made.

Learned counsel for the assessee, Mr. V. Ramachandran, submitted that the assessee could not possibly be expected to furnish materials which

the form of return did not require ; that the Assessing Officer for all these assessment years had made a detailed computation of the amounts to be

allowed as deduction u/s 80I of the Act, which would prima facie indicate that he had applied his mind as to the eligibility of the assessee for relief

u/s 80I and that, therefore, the present notices are only to be regarded as the result of a change of opinion. It was further submitted that the

assessee had made a full and true disclosure of all the relevant material facts necessary for the assessment during all these years.

Learned counsel referring to Sections 147 and 159 of the Act, submitted that where the Assessing Officer wishes to reopen an assessment after

the expiry of four years from the end of the relevant assessment year, the conditions set out in the proviso to Section 147 of the Act must be

satisfied in addition to the action being initiated within the time limit set out in Section 149 of the Act, having regard to the extent income alleged to

have escaped tax. Learned counsel placed reliance on the concluding part of the main proviso to Section 147 of the Act which refers to the

disclosure of all the relevant material facts fully and truly for assessment for the assessment year. It was submitted that the proceedings had been

initiated in all these cases only in June, 1992, long after the expiry of four years from the end of the relevant assessment year.

Counsel for the Revenue relied upon the assessment order for the assessment year 1989-90 as well as the contents of the counter affidavit.

Counsel further asserted that notwithstanding the proviso to Section 147 of the Act, notice could be issued u/s 148 of the Act, if it is permissible to

do so in terms of any of the clauses of Section 149 of the Act and that, therefore, it was not necessary for a finding that there had been failure on

the part of the assessee to fully and truly disclose all the material facts at the time of reassessment.

Section 147 of the Act deals with the income escaping assessment. Before a notice u/s 148 of the Act can be issued, all further requirements of

Section 147 of the Act must be fully met. The time limit specified in Section 149 of the Act is not a substitute for what has been stated in Section

147 of the Act. Section 149 of the Act merely stipulates the time limits within which action can be taken u/s 147 of the Act and a notice issued u/s

148 of the Act. In other words, where a notice issued u/s 148 of the Act is after the expiry of a period of four years from the end of the relevant

assessment year, the conditions set out in the proviso to Section 147 of the Act must be satisfied. Such a notice also should conform to the time

limits and the monetary limits set out in Section 149 of the Act. There is no option given to the Assessment Officer to comply with either Section

149 of the Act or the proviso to Section 147 of the Act. Both of them are to be simultaneously complied with and the requirements therein are to

be fulfilled before a valid notice can be issued u/s 148 of the Act.

In all these cases the notices have been issued after the expiry of the period of four years. The notices can be sustained only if it can be held that

there had been failure on the part of the assessee to disclose fully and truly all material facts that were necessary for the assessment for three

assessment years.

In the case of Income tax Officer, Calcutta and Others Vs. Lakhmani Mewal Das, , the Supreme Court observed in the context of Section

148 of the Act that (page445) :

We may add that the duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original

assessment. Production before the Income Tax Officer of the account books or other evidence from which material evidence could with due

diligence have been discovered by the Income Tax Officer will not necessarily amount to disclosure contemplated by law.

It is thus clear that the assessee cannot take shelter under the plea that the return did not require a particular fact to be set out and, therefore,

the failure to disclose the facts will provide immunity to the assessee from any notice being issued u/s 148 of the Act after a period of four years.

The duty that is cast upon the assessee is to disclose the primary facts on the basis of which the Assessing Officer can decide as to whether the

assessee is entitled to the deduction claimed or not. The mere fact that the Income Tax Officer had reached some conclusions and had allowed the

deduction does not necessarily imply that the Income Tax Officer had been provided with the primary facts required for making a decision as to

whether the deduction claimed was allowable in terms of the relevant statutory provisions.

The assessment orders for all these years do not indicate that the primary facts required for claiming the relief u/s 80I of the Act had been

disclosed, at the time the assessment orders were made. The assessee has not placed any materials de hors those assessment orders which would

indicate such knowledge on the part of the Assessing Officer.

It is only in the assessment order for the year 1989-90, along with the material facts, the reasons relevant to the allowability or otherwise of the

assessees'' claim for deduction u/s 80I of the Act have been set out. The facts stated therein would constitute information for the purpose of

Section 147 of the Act and would provide grounds for the reasonable belief which the Assessing Officer is required to entertain before initiating

proceedings under that section.

Learned counsel for the assessee relied on a Division Bench judgment of the Gujarat High Court in ARIVND BOARDS AND PAPER

PRODUCTS LTD. Vs. M. T. KESHRUWALA, Income Tax OFFICER, WARD A (REV.), NAVSARI., , in support of his submission that the

assessee had disclosed all the facts and all that the Assessing Officer had now done is to change his opinion thereon. The decision relied upon

turned on the special facts in that case. The court therein had found that there was no warrant for holding that the assessee therein had failed to

disclose the relevant material facts.

The Supreme Court in A.L.A. Firm Vs. Commissioner of Income Tax, Madras, , elaborately considered the circumstances in which

assessments can be reopened. The apex court set out four situations in which notices u/s 34(1)(b) of the Indian Income Tax Act, 1922, which

corresponds to Section 147 of the 1961 Act could be validly issued. The court also noticed the fact that in the case of Indian and Eastern

Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, , it was emphasised that the Income Tax Officer must have some

information which makes him realise that he has committed an error in the earlier assessment and such information need not necessarily be

extraneous to the record. It would be enough if the material on the basis of which the reassessment proceeding''s are sought to be initiated came to

the notice of the Income Tax Officer subsequent to the original assessment

Applying the law laid down by the apex court i A.L.A. Firm Vs. Commissioner of Income Tax, Madras, , the only conclusion possible on the

facts of these cases is that the notices issued to the assessee u/s 148 of the Act do not suffer from any infirmity, as they are based on the

information contained in the assessment order for the year 1989-90 which information, though material and concerned the primary facts, had not

been placed by the assessee at the time of assessment for the relevant assessment years for reopening which those notices had been issued.

The writ petitions therefore fail and they are dismissed. No costs. All the connected writ miscellaneous petitions are also dismissed. However,

the references made in the earlier part of this order with regard to the contents of the assessment order for the assessment year 1989-90 are not to

be treated as preventing the assessee from challenging the correctness of the contents of that assessment order. It is open to the assessee to urge

all his contentions before the Assessing Officer.